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Nov 20'23
Exercise
A firm has a liability cash flow of 100 at the end of year two and a second liability cash flow of 200 at the end of year three. The firm also has asset cash flows of X at the end of years one and five. Using an annual effective interest rate of 10%, calculate the absolute value of the difference between the Macaulay durations of the asset and liability cash flows.
- 0.018
- 0.020
- 0.022
- 0.024
- 0.026
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: E
[[math]]
\begin{array}{l}{{(1+s_{4})^{4}(1+{}_{1}f_{4})=(1+s_{5})^{5}}}\\ {{(1.09)^{4}(1+{}_{1}f_{4})=(1.095)^{5}}}\\ {{1f_{4}=0.1152}}\end{array}
[[/math]]
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.